Judge issues stay in Calif. power sales, sets hearing

SACRAMENTO, Calif., Feb 23 (Reuters) - A federal judge late on Friday issued a stay of litigation in the case of four power suppliers who earlier this month were ordered to sell electricity to the California Independent System Operator (ISO) despite fears they might not get paid.

U.S. District Court Judge Frank Damrell issued the stay after independent power generators Reliant (NYSE:REI - news), Williams Cos. (NYSE:WMB - news), AES (NYSE:AES - news) and Dynegy (NYSE:DYN - news) agreed to extend their sales to the ISO, the agency that manages the state power grid, pending further hearings set for Friday, March 16.

``We are very pleased that all the parties can at least agree to the stay,'' said Patrick Dorinson, a spokesman for the ISO. ``It means the lights will stay on.''

Despite the stay, the underlying reasons for the litigation remain unchanged.

The four companies have balked at selling to the ISO, whose credit has been hurt by the near bankruptcy of PG&E Corp's (NYSE:PCG - news) Pacific Gas and Electric Co. and Edison International's (NYSE:EIX - news) Southern California Edison, two of its biggest customers.

The investor-owned utilities have amassed a debt of about $12 billion buying power in the wholesale market for the 24 million Californians who depend on them for their electricity.

Judge Damrell issued a temporary restraining order requiring Reliant to continue emergency sales to the ISO on Feb. 6. It was shortly thereafter expanded to include the other suppliers and kept in place until Friday on state lawyers' arguments that the power was needed to avoid plunging California into darkness.

California is currently struggling through its worst-ever energy crisis, with power supplies running dangerously low amid soaring demand from the state's growing population and robust economy following a 10 year standstill on new power plant construction.

Industry analysts said the judge's move on Friday was aimed at buying California Gov. Gray Davis a bit more time to put together a rescue plan for the two troubled utilities. Davis' plan includes helping the utilities out from under their crushing debts by buying their share of the state power grid.

Davis announced earlier on Friday a tentative agreement with Southern California Edison to buy its 12,000 mile network of high-voltage transmission lines for $2.76 billion.

San Francisco-based Pacific Gas and Electric, which has been reluctant to sell such a key asset, said it was still in talks with Davis aimed at reaching a deal that would benefit ratepayers and shareholders.

Meanwhile, Reliant, Williams, AES and Dynegy continue to argue that they should be allowed to sell their power to the Department of Water Resources, which was appointed by Davis to buy power on behalf of the state and is backed by California's strong credit rating, rather than face the ongoing payment risk posed by the ISO.

Reliant controls about 3,800 megawatts (MW) of generating capacity in California, and Dynegy has about 2,000 MW. AES's 4,083 MW of in-state generation is marketed by Williams.

-- pho (owennos@bigfoot.com), February 23, 2001